On the heels of COP26 and the introduction of the International Sustainability Standards Board (ISSB), banks and lenders are once again taking a closer look at their role in the transition to a low-carbon economy, with the goal of keeping global temperatures
from rising more than 2 degrees Celsius. Banks endeavoring to improve their overall environmental, social and governance (ESG) profile need to effectively assess, measure, and report on the climate-related impact of their portfolios.
Below is a list of measurement and reporting best practices financial institutions should be aware of, and their related initiatives. These initiatives provide frameworks and guidance to support banks and lenders with the collection, measurement, and disclosure of data related to the climate impact of their portfolios. Although this is not an exhaustive list, it does offer insight into the steps financial institutions need to take when conducting climate impact reporting.
| Measurement and Reporting Practices | Guiding Framework or Organization |
|---|---|
Create technology roadmaps and decarbonization scenarios for understanding transition risks and conducting scenario analysis under Task Force on Climate-Related Financial Disclosures (TCFD) reporting. | International Energy Agency |
Conduct sector-based carbon performance analysis for portfolio companies and their peers. | |
| Conduct greenhouse gas accounting and disclosure processes for loans and investments made by financial institutions. | |
| Collaborate with other investors to engage with the world’s largest corporations on their climate transition performance. | |
| Conduct climate scenario analysis of relevant sectors. |
|
| Engage in climate stress-testing as recommended under TCFD. The assessment should include considerations of transition risks (such as policy risk, technology opportunity), and acute and chronic physical risks (such as coastal flooding, extreme
heat and extreme cold). |
|
| Understand evolving standards on assessing and reporting climate-related investments and financing activities. |
|
Have questions about how your bank can lower the climate impact of its portfolios? Reach out to Sustainalytics Corporate Solutions to learn how we can help.
Recent Content
Risk and Opportunity in Biodiversity: How Sustainable Finance Can Help
This article outlines how biodiversity loss poses material risks to business and how it connects to many other issues that companies can’t ignore. In addition, it covers how biodiversity conservation presents substantial economic opportunities, and how businesses can address and access these opportunities by issuing linked instruments that integrate biodiversity considerations.
Today’s Sustainable Bond Market: Boosting Confidence in Sustainable Bond Issuances
In this article, we examine the kinds of sustainable bonds offered in the market, some of the key regulations being developed in different markets and the current initiatives to improve the quality and credibility of issuances.
Webinar Recap: How Integrating ESG Can Drive Opportunity for Private Companies
Recently, Morningstar Sustainalytics hosted a webinar – ESG in the Lifecycle of a Private Company: How Stakeholder Demands Drive Sustainability in Private Markets – to address some of the questions private companies might have surrounding ESG and how it could impact their business.